Question

Consider the market for private economics help. Assume it is perfectly competitive. The market's inverse demand curve is p = 1600 -5Q, with Q being the number of students receiving help per quarter and p being price per quarter. Economics help private
marginal cost curve is MCP = 100 + 5Q. Also assume that, because economics professors curve their classes, when one student improves her grade, it causes every other student to have a lower grade. This is a negative externality. Assume the marginal cost of curving is MC^(c)=(5/2)Q.

a. Find the perfectly competitive equilibrium of this market.

b. Find the socially optimal equilibrium of this market.

c. Draw this market, including the following:
demand, private marginal cost, and social marginal cost. Also
label the following points: the perfectly competitive equilibrium and the socially optimal equilibrium. Also please label
axes and where curves cross axes.

d. What is deadweight loss in this market?

Now suppose that the city wants to ensure the socially optimal equilibrium in this
market by imposing a standard.

e. What standard should the city set?

Now suppose that instead of a standard the city wants to impose a specific tax on
this market to ensure the socially optimal equilibrium.

f. What specific tax should the city set?

Now suppose that instead of a standard or specific tax the City wants to ensure the
socially optimal equilibrium by assigning property rights to students to not have their grade
lowered by other students' performance.

g. Why might assigning property rights fail to ensure the socially
optimal equilibrium? Please give at least three reasons.

Answer 1

answering only first four parts as per HomeworkLib policy

a p 160o -58, 600-50 0o 56 1500=10 Q 1600-5(150) 1600-450 = 850 An- 68 x = 1 50 , fx= 2 ot m 1600-5, (00+ 150 -瓦 150015+5 12.58deodipt lobs 2. 1600 7Soually 1825 d) deadwt lo8 1895 -850]150-1] 850 5685 10o 380 Q 120 \50